In New York State, for example, it was found that 73 communities have been deprived of all or a substantial portion of their bus service since 1951 as a result of the net decrease of 103 companies supplying such services. Recognizing that the tax burden was an extremely important element in these failures, the State legislature exempted the bus carriers from the March 1, 1959, increase of 50 percent in the State motor fuel tax and repealed the 2 percent tax on the gross reve`nues of the bus companies. Thus, the increase in the Federal fuel tax proposed by the administration could be the difference between survival and failure for many of the members of our industry. It would be contrary to what is rapidly becoming a nationwide effort to keep the intercity bus carriers healthy. And, by crippling our service, the tax would harm the less privileged and lower income segments of the Nation's population. We appreciate very much the opportunity to present our views and most earnestly urge the committee to reject the proposal for any increase in the fuel tax. The CHAIRMAN. We appreciate your bringing your statement to us and presenting the views of the National Association of Motor Bus Operators. Are there any questions? If not, the committee will recess until 1:30 this afternoon. (Thereupon, at 12:20 p.m., the committee recessed, to reconvene at 1:30 p.m., same day.) AFTERNOON SESSION The CHAIRMAN. The committee will please be in order. STATEMENT OF BURTON N. BEHLING, ECONOMIST, ASSOCIATION OF AMERICAN RAILROADS The CHAIRMAN. Dr. Behling, although we recall your previous appearances before the committee, will you please identify yourself again for this record? Dr. BEHLING. Yes, sir. Mr. Chairman, members of the committee, my name is Burton N. Behling, and my position is that of economist for the Association of American Railroads. I appear here for the association and its member railroads, which in terms of mileage and of revenues account for more than 95 percent of the railroad industry in the United States. As a major industry, the basic concern of the railroads with the problem of financing the large and expanding Federal highway program is that the fiscal policies and condition of the Government shall be sound. The immediate interests of the railroads in this matter are twofold: We are general taxpayers; and we must compete as self-supporting business enterprises with highway transportation business conducted on publicly financed facilities. The railroads believe that the essential issue before this committee. is preservation of the pay-as-you-go policy of financing the Federal highway program with revenues obtained from highway users, as set forth in the Highway Act of 1956, without drawing upon general taxpayer funds. If we do not adhere to this sound and sensible policy now, under present conditions in the economy, whenever could we expect to do so? To deviate from pay-as-you-go would be nothing less than dangerous playing with fiscal fires. Certainly there is no assurance of general budgetary surpluses in the years ahead from which deficits in the highway trust fund could or should be sustained. We need only take note of the budgetary deficit of some $12.5 billion in the 1959 fiscal year just ended and then be reminded that a modest surplus had been anticipated when the budget for that year was first presented in January 1958. Who can definitely predict budget surpluses 2 or 3 years hence? But even if such easy assumptions could be taken on faith, general budget surpluses should not be mortgaged to support the highway program. This would obstruct debt control and reduction, would thwart needed reductions of general tax burdens when conditions permit, would threaten general taxpayers with further increased burdens in the future, and would seize on behalf of highway users general taxpayers funds needed for other purposes, such as defense, which can only be financed with general tax revenues. The highway program is a clear-cut instance of a Federal undertaking that easily can be, and should be, self-financing all the way and with no temporizing. It now is evident that the step-up in the highway program authorized in 1958 has aggravated the problem of maintaining the trust fund in balance, and, of course, if there were to be any further step-ups these difficulties would be still further magnified. Organized commercial groups of highway users, with support from their suppliers and industries, standing to gain from highway construction, incessantly promote ever large highway programs, even as they ignore the realities of prudent financing and avidly seize upon any pretext or expediency to shun the problem of meeting the costs. Commercial operators on the public highways have made it abundantly clear, before this committee and elswhere, that they demand more and better heavy-duty highway facilities, but do not want to pay for them. These divergent strivings continue, highlighted at the moment by attempts to cover impending trust fund deficits by dipping into general funds or, what amounts to the same thing, by converting still more of the general fund excise taxes into highway trust fund taxes. The effect upon the Federal budget would be precisely the same in either case. It is well to remember in this connection that most of the revenues now going into the highway trust fund are being derived from excise taxes which were in effect as sources of general revenue long before 1958 when the Highway Revenue Act was passed. The table appended to my statement, which I request be made a part of the statement for inclusion in the record, shows that for the period 1957-62 over 70 percent of the funds for the Federal-aid highway program are being derived from excise tax revenues that were going to the general fund prior to 1956. Thus, less than 30 percent of the funds have come, or are scheduled to come, from new or increased taxes provided by the 1956 act. Moreover, the proportion coming from pre-1956 general fund taxes is rising and by 1962 will be over 77 percent. (Table referred to follows:) Expenditures from highway trust fund and sources of revenue, 1957-62 1 1960 budget message of the President, p. M49. 2 Computed by applying proportions between the existing and the new or increased taxes as estimated in report of the Committee on Public Works on H.R. 10660, H. Rept. 2022, 84th Cong., 2d sess., p. 46, to revised estimates of receipts, less refunds, contained in letter from Acting Secretary of the Treasury on financial condition and results of the operations of the highway trust fund, fiscal year 1958, H. Doc. 92, 86th Cong., 1st sess., p. 9. Receipts from the manufacturers' excise tax of 8 percent on trucks, buses, truck trailers, etc., which was already in effect when the Highway Revenue Act of 1956 became law, are not included as receipts from additional taxes. Mr. BEHLING. Particularly in view of these circumstances, any further diversion of existing general fund taxes into highway trust fund taxes would be wholly unwarranted. Such diversion would require finding other general tax revenues as replacement or incurring future budget deficits. You have heard before and will again suggestions that general and defense benefits from highways justify the use of general tax revenues in highway financing. This is an excuse, a smokescreen to escape responsibility for highway costs by shifting them from users to the general body of taxpayers, including the railroads. The same fallacious theory of general and defense benefits could be advanced on behalf of any essential industry or any worthwhile economic activity seeking to be supported by general taxpayers. In the case of highways, the general benefits are nothing more than the transmitted or reflected effects of highways used and available for use. In our kind of economic system the proper place for the costs to be imposed is on the users as the direct and significant beneficiaries. A contention also heard is that no additional highway user charges should be levied until the section 210 studies of cost responsibilities and benefits shall have been completed in 1961 by the Secretary of Commerce in accordance with directives contained in the Highway Revenue Act of 1956, as amended. It is true that Congress by these provisions of section 210 has reserved a more final determination of equitable highway user charge structures until these reports have bene submitted and considered. Nevertheless, the inescapable fact is that right now there are immediate financing problems that will not wait. The time for positive action on them is now, without letting them pile up for disposition some years hence. Failure to increase user taxes and revenues on an interim basis now, while letting programed expenditures go on undiminished, would only store up troubles for the future. The financing difficulties would multiply and meanwhile the pay-as-you-go policy would be shunted aside. Immediate and timely action on the interim financing problem will in no way conflict with the declared intent of Congress to consider further determinations and adjustments of highway user taxes whenever the section 210 studies have been completed and considered by the Congress. We agree that it would not be feasible now to make final determinations as to equitable highway user tax structures in dealing with the emergency financing problem now before you. When we appeared before this committee in February 1956, before the Highway Revenue Act of 1956 was enacted, we demonstrated that a tax on motor fuels at a uniform rate cannot by itself produce equitable results as between light and heavy vehicles, for the reason that it overburdens private motorists and owners of other light vehicles with highway costs which the operators of large and heavy vehicles should but would not pay. Hence, the fuel tax must be supplemented with additional and compensating charges on the large and heavy commercial vehicles. Congress in the 1956 act recognized this fact and made a start, though only a start, toward correcting the fuel tax deficiency by imposing a supplemental tax at the rate of $1.50 a year per 1,000 pounds upon vehicles with taxable gross weight of more than 26,000 pounds. Pending completion of the section 210 studies of highway cost responsibility and of the road test now underway in Illinois, there should be no retreat from the sound principle recognized and in part established by Congress in the 1956 act. Accordingly, in the emergency financing now to be acted upon by this committee, the special tax on heavy vehicles should be increased at least in proportion to any increase adopted in the tax on motor fuel. Thus, for example, if the rate of fuel tax were to be increased from 3 to 4 cents a gallon, the special tax on heavy vehicles should at least be correspondingly increased from $1.50 to $2 per 1,000 pounds. At the same time, there should be a greater increase in the tax rate on highway diesel fuel than on gasoline, in recognition of the fact that diesel-powered vehicles obtain about 50 percent more miles per gallon than do similar gasoline-powered vehicles. For this reason the same rate of tax on both fuels cannot be a proper yardstick of high way use. The only feasible alternatives to immediate increase of user taxes would be: (1) To stretch out the highway spending program over a longer period of time, or (2) To substantially reduce the Federal share of the costs of the Interstate Highway program below the present 90 percent. Those alternatives, as has been brought out in these hearings, would not solve the emegency financing poblem. If highway users generally are really opposed to increased user taxes, this may mean that they favor a stretchout or a reduction of the 90 percent Federal share for the Interstate System costs. The only other explanation would be that spokesmen for organized highway user groups would have you believe that highway users generally are not willing to pay for what they get and are not interested in holding down burdens on general taxpayers. As another avenue of temporary escape, it has been suggested that there be resort to borrowing to cover impending deficits in the high way trust fund. This would further complicate the Government's already extremely difficult problems of debt management and refunding operations. If, nevertheless, this expedient should be decided upon, and we are not recommending it, such borrowing should be with revenue bonds having a definite first claim on future trust fund revenues for repayment of principal and interest so that no future clamor for "forgiveness" could arise. With eyes fully open, it should also be recognized that such borrowing would only postpone the necessity of increased user taxes, since there are no future surpluses in sight from existing trust fund taxes with which to service the bonds. Thus, unless the highway program is to be stretched out, the real choice is whether to increase user taxes now or later, with interest as the price to pay for putting off this decision on taxes. Thank you. The CHAIRMAN. Dr. Behling, you have already had included in the record the table that you had appended to your statement. Dr. BEHLING. Yes, sir. Could I also at this time, Mr. Chairman, since there have been references to highways for defense and to the position of the Department of Defense, could I offer for the committee and for the record some excerpt from the testimony made by the Department of Defense witness at the hearings before the House Public Works Committee in 1955? The CHAIRMAN. That will be placed in the record, without objection. (Information referred to follows:) Excerpts from testimony of Maj. Gen. Paul F. Yount, Chief of Transportation, U.S. Army; and witness for the Department of Defense at hearings before the House Public Works Committee on proposals for an expanded highway program-Hearings on H.R. 4260, part I, April 21, 1955 "*** consideration has been given to Army, Navy, and Air Force installations; key industrial areas important to the national defense; principal transportation centers; routes considered to be of strategic importance in the defense of the United States; and efficient highway transportation. Based on these considerations and related matters, it has been determined by the Department of Defense that the National System of Interstate Highways is the principal system of highways to serve the national defense" (p. 158). "Highways to serve the national defense have been the subject of continuing study between the military staffs and the staffs of civilian highway agencies. As a result, the Department of Defense has designated the National System of Interstate Highways the principal system of highways to serve the national defense. It has done so because it believes a relatively small, uniformly designed, and efficient system of connected highways, interstate in character, is essential to the national defense. In addition, it is clear that the military highway system needs and the civilian highway system needs cannot be economically separated. Accordingly it has been the constant view of the Department of Defense that the highway system needs of the national defense should be provided for by integrating the defense needs to the normal civilian highway programs" (p. 159). "*** Equipment for the modern Army is much heavier, harder hitting, and faster than was foreseen only a few years ago. The weapons of the future will be the fastest and hardest hitting that can be developed. The trend has been toward heavier weapons. In this connection our objective is to distribute the |